[(English text for Chinese speech) Madam Speaker, I support Budget 2014. I am happy that we are honouring the pioneer generation of modern Singapore.

My parents both came to Singapore from Malaysia in the late 1950s. They met at the then-Teachers Training College, now NIE, got married and became teachers and Singapore citizens before our independence. They stayed put in Singapore and worked all their adult years in the same job, being Chinese teachers in our local schools. Those were turbulent years, especially teaching in Chinese schools at a time when Singapore had to fight the influence of the communists. Chinese schools were battlegrounds for mindshare. My parents had lived since 1960 in the same house in what is now classified as Joo Chiat SMC. Those days, Kampong Chai Chee facing our backyard was teeming with farms.

They are like many of the elderly residents I had met at Joo Chiat SMC, residents who have stayed in that one and only one house for the last 4-5 decades. These elderly residents have retired decades ago, many from humble jobs. Their biggest concern has been healthcare costs. They have not been able to enjoy many of the healthcare subsidies offered by the government because of their housing type, even though they have been without income for many years. I am happy that this package is given to all our pioneers, regardless of their housing time and how well they are doing currently. Many of us parliamentarians in this House are children of the pioneer generation of modern Singapore, children of people who stuck with this country when there was little and danger was all around us. Children of ordinary citizens no doubt, but citizens who build Singapore to what it is today. It is right for us to honour them.

Next, I will speak on two areas: Education and SMEs. I will continue my speech in English.]

Madam Speaker, in the area of education, the Minister has announced that KiFAS qualifying income level has been raised so that more families can benefit too. This is welcomed. KiFAS is now extended to all MOE kindergartens and those operated by the anchor operators. Previously, only PCF qualified for KiFAS.

I am puzzled why the extension announced by the Minister is to only these few operators. There are around 500 MOE registered kindergartens in Singapore. PCF operates 235 kindergartens. MOE has five, with up to another 10 being planned for the next few years. NTUC does not operate kindergartens. The 3 new anchors are childcare operators. I believe that they operate just 7 premium kindergartens between them. In any case, the anchor operator scheme is a childcare programme and not a kindergarten scheme. The commercial operators have to setup new operating entities to separate their current operations from the childcare centres that they will operate as anchor operators.

So in effect, parents still do not have many choices of which kindergartens they can send their children to. From my understanding of the kindergarten landscape and based on what the Minister has described, they may now choose between PCF and five MOE kindergartens.

Madam, I had spoken about this before. I find it strange that the CFAC, which is the equivalent scheme for childcare, can be used on all MSF registered childcare. However when it comes to kindergarten, MSF has imposed various conditions that had prevented others from qualifying. These include conditions such as the operators cannot have any religious or racial affiliations and cannot be private operators. None of these conditions are required for CFAC. I am not sure what will be announced at the COS, but I certainly hope the scheme can be extended to many more, if not all MOE registered kindergartens.

MOE has said that character and values education are important. Many of the kindergartens with religious and racial affiliations such as those run by Buddhist groups, Huay Kuans, Muslim groups, churches and other VWOs do take in children from the public and have strong character and values education. I wish to see them being included. I will speak on this again during the COS debate.

Next, SMEs. I wish to declare that I own and operate private companies classified as SMEs.

While Singapore enjoyed 4.1% economic growth last year, this economic growth had come about solely because of the growth in manpower. GDP growth is defined as workforce growth plus productivity growth. Productivity growth last year was zero. We cannot depend on economic growth through workforce increase. The government’s long-term goal is to reach 2-3% annual productivity growth by 2020.

At last year’s budget, I spoke of the need to encourage industry consolidation. The current schemes such as PIC and now PIC+, tend to benefit the larger companies. We have over 150,000 SMEs in Singapore. Many are micro enterprises that may not even employ the three non-shareholder staff required to qualify for PIC (cash grants). Even for small companies that qualify, they may not have the scale to benefit meaningful from investments in major automation.

Many of our smaller companies are struggling to stay afloat under the tight manpower and high rental cost environment. While raising their productivity and injecting innovation into their businesses should be the way to go, these companies need to scale up first. Last year, I had argued for the need to stimulate merger and acquisitions (M&A) so that enlarged companies can better take advantage of economies of scale. I wish to repeat my desire to see changes to tax incentives to encourage M&A.

There is a Merger and Acquisition scheme, first introduced in 2010 and enhanced in 2012. As of May last year, only 42 companies have used this scheme. 34 were companies which MOF classified as SMEs with annual revenue of up to $100 million, which meant many could be fairly sizeable companies. The average and median size of deals supported by the scheme was $25 million and $3 million respectively.[1] The scheme provides meaningful tax incentives for large and mid-sized deals but not for acquiring the small and micro enterprises.

I hope to see the government encourage consolidation amongst smaller companies through enhancing the M&A scheme. The M&A scheme could be graduated to allow higher tax allowances for smaller deal sizes of up to $1 million in value.

Also, the current scheme allows only for outright purchase of shares. Some acquirers prefer to buy over the operations and businesses of SMEs, but not the entire company as they prefer not to be entangled with liabilities that may be associated with the target company. We can loosen the definition of M&A to include such types of acquisitions.

We can also incentivise the acquirers to automate the operations of their acquired businesses to achieve greater productivity and to revamp old business models. We can look at allowing even higher than 400% tax allowances in PIC for investment in automation for merged entities to get them to speed up investments in productivity improvements for the acquired operations.

I noted that both the Singapore Business Federation and the Association of Small and Medium Enterprises (ASME) have also issued recent statements for the government to do more to promote M&A, including improving M&A tax allowances. They too cited the need for industry consolidation to create more breadth within industry clusters for better economies of scale and to reduce marginal costs.[2]

Besides tax allowances, the government could also look at how financing can be made more readily accessible for M&A. For example, the ASME had called for an equity financing scheme to help SMEs fund local and overseas M&As. Such a scheme would make available the option for companies to take on loans for acquisition through pledging equity in private companies. This can be done with risk-sharing collaboration between banks and the government. This will be a useful tool for deserving ambitious companies in our midst to grow rapidly through strategic acquisitions and take on the international markets.

Next, on the innovation mindset of our companies.

SMEs are grateful that PIC has been extended for 3 more years. The scheme has helped defrayed costs and many companies have only just started to use it. As of April last year, 97% of the claims were for purchases of IT and automation equipment and for employee training. The remaining 3% were for the other 4 categories, including R&D and acquisition of intellectual properties.

I believe innovation is important if we are to derive a lot more out of our companies. I hope we can encourage investments in creating breakthrough business models and technologies.

In their pre-budget survey[3], professional services firm KPMG found that 50.3% of 159 companies surveyed felt that the innovation measures in PIC have had no impact on raising innovation. The same survey found that only 1.6% of the respondents were focused on driving innovation.

The survey highlighted a worry finding that SMEs and even Singapore public-listed companies have not found benefits in innovation measures. Respondents in that survey commented that IRAS has been very strict in administering incentives for innovation, favouring revolutionary development at the expense of more market-driven evolutionary development. IRAS has a very strict definition of qualifying R&D activities. [4]

Indeed, this has been my personal experience too speaking with technology companies trying to develop the next killer App or a potentially industry game-changing software. They had not been successful in claiming PIC for their R&D manpower based on the strict PIC definition.

I hope IRAS and MTI can review the criteria and work on a more market-oriented definition of research and innovation and to drive more adoption by companies in this area.

Finally, in the area of SME financing, this budget provides for increased government risk-share on micro-loans to SMEs from 50% to 70%. In a reply to my PQ, MAS has said that it does not call for banks to require that SMEs meet a project track record or any specific requirement in order to get a loan. In evaluating loans, financial institutions all have their own criteria, some of which can make it rather difficult for companies, especially those with shorter track record to secure loans. This may be so even with government risk-sharing.

IFS loans cap has now been doubled to $30 million per company. I like to know from past evidences, if IFS and existing government-supported financing schemes had sufficiently met the overseas expansion needs of our companies. The total value of loans approved under IFS declined yearly from $378 million in 2010 to $121 million in 2012. Similarly, the Loan Insurance Scheme (LIS and LIS+), saw total value of loans approved fall from $2.3 billion in 2010 to $1.3 billion in 2012.[5]

The Economic Strategies Committee (ESC) had called for an EXIM bank in 2010, only to be deemed not feasible by MOF a year later. There were notable disappointments from the business community then at that decision.[6] Our companies are disadvantaged when compared with other countries like Taiwan, Japan and South Korea, where the percentage of total business credit going to SMEs range from 50%-76%, compared to 27% in Singapore.[7] Even with the increased government risk sharing, will financial institutions still be too conservative in their approach as they still need to bear some risks and there are less risky things for them to do?

I hope the financing situation for SMEs will be closely tracked. If the new measures are not sufficient to help meet our SME’s financing and overseas expansion needs, perhaps the government can relook again into whether it is necessary to create a SME Bank or an EXIM bank.

In conclusion, as we honour the pioneers of modern Singapore in this Budget, like the honourable member Mr Laurence Lien, I too like to think of each generation as pioneering for the next. As we approach the 50th year of our independence and soon the 200th anniversary of the founding of Singapore by Sir Stamford Raffles, my wish is to see a vibrant Singapore, with innovative home-grown companies and dynamic Singaporeans establishing a new Singapore in this 21th century, so as to ensure success for our future generation.